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Eduardo Martínez Abascal, Professor, IESE, University of Navarra

Decentralize expense and income

Wed, 17 Mar 2010 09:39:30 +0000 Published in Expansion (Madrid)

In Spain taxes are collected by the State (Madrid in the nationalist jargon) and the expenses are carried out by the autonomous governments. The Generalitat provides me with services such as Education, health, etc. On the other hand, Madrid takes my money with taxes. The citizen perceives the 'goodness' of the Generalitat (to give an example) and the 'malice' of Madrid. And I say the Generalitat for being a short name, but for the same reason I could say the board de Comunidades de Castilla-La Mancha (fabric, with the length of the name).

A basic decision criterion in the economic world is that of cost/benefit: how much something costs me and what benefit I get from it. This principle, which leads us to economize and look at expenses with a magnifying glass, is not fulfilled in the case of the Autonomous Administration. If I am the Generalitat, I can spend as much as I want on improving services. The benefit is clear: the citizens will be happy and will vote for me. The cost for me is non-existent. If I have no money I will go to Madrid and ask for more money. And if they don't give it to me, I will go to the media and I will say that in Madrid they are bad and they don't give me back the money we have paid with our taxes.

My proposal is simple, although politically 'heretical'. Each autonomous region contributes with money to pay the expenses of the State (few) and, from there, each autonomous region can collect from its citizens what it sees fit and spend it as it sees fit. Some will spend more on infrastructure, others on cultural policy. Some will collect more with VAT and others with personal income tax. Let each autonomous region decide. It will not be possible to blame others. Each government will bear its own responsibility towards the citizens and they will also decide whether to continue voting for them or not... or whether to change autonomy. The more efficient government will spend less to provide the same services and will therefore charge less taxes. The fundamental catch is that, it is said, this breaks the unity of the country (of the nation, of the homeland, of the State, or whatever you want to call it). I believe it does not. This system already exists in Navarre and in the Basque Country, it is called 'concierto' and it works. What produces a lack of unity is that we are beating each other to see who gets the most money from the common treasury. This autonomy in taxes will produce a healthy skill between autonomies and perhaps even increase the regional mobility among Spaniards, a good thing to get to know each other better.